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2013 DOE Bioenergy Technologies Office (BETO) Project Peer Review

Sapphire Integrated Algal Biorefinery (IABR)

Wednesday, May 22, 2013

Integrated Biorefineries

Jaime E. Moreno, P.E. Sapphire Energy, Inc.

Sapphire produces drop-in crude oil from algae, sunlight, and CO2 – in a scalable and sustainable process

CO2

Sunlight

Plentiful inputs Scalable, open pond facilities Green crude

Fossil crude came from algae and other plants living millions of years ago; Sapphire radically accelerates a natural phenomenon

Non-potable water • Non-arable land • Enhanced algae • Proprietary process

Sapphire Energy – IABR Project Description

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Sapphire Energy – IABR Project Description

•El Paso, TX

San Diego, CA Headquarters and R&D Lab

Columbus, NM Integrated Algal Bio-Refinery

Las Cruces, NM R&D Lab

Mission Viejo, CA Project Mgmt & Engineering

LOCATIONS

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4

Sapphire Energy – IABR Project Description

• At Completion – Proof of Commercial Demonstration for Large Scale Production of Transportation Fuels from Algae Feedstock

• Integrated Process: • Biomass Growth • Biomass Harvesting • Oil Extraction • Water and Nutrient

Recycle • Energy reuse and

Optimization • Waste Stream Minimization

• $135 MM total project costs

Sapphire has developed the most advanced large-scale algal oil system in the world Strain creation

Cultivation

Harvesting

Extraction & processing

Refining (final products)*

Algae facility in Columbus, NM

Algae-derived fuel process units Advanced algae strain development

* Upgraded in a refinery or by a stand-alone processor; Sapphire’s oil quality enables processing in today’s refineries with no modifications

Sapphire Energy – IABR Project Description

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Sapphire Energy – IABR Quad Chart Overview

Project Timeline

Project Budget

DOE Share

$50MM

Sapphire Share

$85MM

TOTAL $135MM

Project Development

Project Participants

• Phased Deployment • Cost on track • Schedule on track • Technical Progress on track • Completion in Sept-2014

• Start Phase I: Jan-2010 • Phase I Mech. Turnover: Jun-2012 • Final Phase Design Stage Gate:

Sept-2013 • Final Phase Planned Completion:

Jun-2014 • ~60% complete as of Jan-2013

• DOE Funding Rec’d to Date: $31MM

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Sapphire Energy – IABR Cost & Schedule Performance

Spend Plan

$M

$20M

$40M

$60M

$80M

$100M

$120M

$140M

$M $2M $4M $6M $8M

$10M $12M $14M $16M $18M

Cumulative Costs Monthly Costs

Planned Monthly Actual Monthly Planned Cumulative Actual Cumulative

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Sapphire Energy – IABR Cost & Schedule Performance

Earned Value

0 0.2 0.4 0.6 0.8

1 1.2 1.4 1.6 1.8

2

J-11

M-1

1

M-1

1

J-11

S-11

N-1

1

J-12

M-1

2

M-1

2

J-12

S-12

N-1

2

Baseline CPI SPI

Dec 2012 Construction Delay

from Severe Weather

Jan 2013 Schedule Recovery

Sapphire’s process for making algae-derived fuel

Gasoline

Jet

Diesel

Strain development

1

Extraction module

4

Oil refining module

5

Cultivation module

2 Harvest module

3

Advanced genetics programs

Open pond, CO2, and ag industry crop protection and fertilizers

High efficiency, proprietary process to remove oil

Proprietary process to flocculate and de-water

Nutrient recycle and residual handling stream

Upgraded in a refinery or by a stand-alone processor

Oil

Other

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Harvested water recycle loop

Sapphire Energy – IABR Project Overview

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Sapphire Energy is providing barrels of oil to be refined for market use

• Tesoro recently signed an agreement to purchase crude oil from Sapphire Energy’s Green Crude Farm in Columbus, New Mexico

• This begins the first step of a commercial relationship to process Green Crude oil from Sapphire’s future commercial facilities

• In initial testing by Sapphire Energy, Green Crude oil was refined into on-spec ASTM 975 diesel fuel, proving its compatibility with the existing network of pipelines, refineries and transport systems

• Sapphire Energy will grow production significantly to further expand its commercial demonstration and begin the transition towards commercial-scale production

Sapphire Energy – IABR Project Overview

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Sapphire Energy – IABR 1 - Project Management

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Rationale & Drivers for Prioritization of Project Objectives

• Purposeful and targeted technology and biology program development

• Data and piloting based

• Stage Gate decision making / spending approval

• Maximize Project Success Criteria – Integrated process – Commercial demonstration scales – Commercial demonstration economies – Budget control – Schedule constraints – Stakeholder interests

Sapphire Energy – IABR 1 - Project Management

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• Establish dedicated PMO • Utilize personnel with a proven track record of developing and executing

complex projects • On-site Sapphire personnel to provide owner oversight during construction • Baseline focused project execution • Utilize industry standard tools and management practices

• Stage gate process • Primavera CPM schedules • Establish baseline metrics and

measure on regular basis • Robust project reporting systems

• Establish open reporting to all stakeholders • Hold regular status reviews with stakeholders • Early identification of project deviations

• Develop mitigation plans • Identify variances

PHASE ICONSTRUCTION

PHASE I CONSTRUCTION

PROJECT DEVELOPMENT STATUS

FIELD PROGRESS STATUS

PROJECT MANAGEMENT DASHBOARD - 2

PROJECT FINANCING PLANKEY ACTIVITIES THIS PERIOD KEY PLANNED MILESTONES

CONSTRUCTION PROGRESS & SPEND

0% 15% 30% 45%

USDA LoanDOE GrantSE Internal

Construction LNTP

Production Ponds Start

Start Harvest Feed Pond &

Ditch

Complete Procurement Purchasing

Start Production

Pond PipingStart Harvest

Area Electrical

Start Buildings & Structures

Start Setting Equipment in Harvest Area

Start Inoculating Ponds on

March 17thComplete

Harvest Area

Complete Initial Harvest

Flow

J J A S O N D J F M A M J J

0%

20%

40%

60%

80%

100%

J J A S O N D J F M A M

Total Spend:Red

Field Progress:Blue

Original Budget

Current Forecast

Total Committed

Incurred To

DateIncurred

This PeriodAMEC - General 47,027,646 51,785,517 49,116,454 48,082,878 93% 3,804,469AMEC - Pretreatment 5,000,000 0 0 0 0% 0AMEC - PD Allowance 2,207,871 0 0 0 0% 0LC SECURITY 189,000 189,000 165,000 139,166 74% 12,360HGI 650,000 650,000 365,000 312,550 48% 9,773B&C 260,000 0 347,278 347,278 134% 3,553AMEC Geomatrix 150,000 150,000 50,550 14,049 9% 9,785SE Project Mgmt 1,515,483 1,775,483 1,151,657 1,125,261 63% 173,490SE PDU Expansion 0 2,450,000 604,000 385,528 16% 177,087Total $57,000,000 $57,000,000 $51,799,939 $50,406,710 88% $4,190,517

% of Forecast Incurred

1) Completed Mechanical andElectrical Work for All Ponds

2) Completed Paddlewheel Installation3) Completed Liner Installation for

all Production Ponds4) Completed All Major Foundations

in Harvest Area5) Continued Pipe Rack and Piping

Installation in Harvest Area6) Implemented Plan for PDU Upgrade

in 2012

Total Forecast

Budget Variance $0

Cost Performance 1.00

Schedule Performance 0.99

Forecast Const Finish 06-Jun-12

$57,000,000

Baseline Total 2,207,871Total Used (2,710,653)Total Gained 1,338,033Total In Preperation (520,132)

Actual Remaining $315,119

Remaining/Baseline 14%

Planned Remaining $300,000

Variance $15,119

BudgetUSDA Loan 54,500,000DOE Grant 50,000,000SE Internal 30,500,000Total Project 135,000,000

Project Element CumulativeSitework 93.45%Ponds 99.45%Buildings & Structures 88.54%Harvest Area 71.92%

Total Project Progress 91.40%Planned Progress 92.50%Variance -1.10%

Site details: the project is located on land that was previously used for farming, but no longer is fertile

The site prior to Sapphire’s ownership

• Land was used for farming until 1973

• Land was abandoned for farming use because the underlying water source became to saline

• Few other productive uses until Sapphire started developing the current project

Sapphire Energy – IABR 2 - Accomplishments & Progress

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Construction: the first phase of the project was constructed over the 2011/2012 timeframe and has proceeded on-schedule and on-budget

December 2011 May 2012

Sapphire Energy – IABR 2 - Accomplishments & Progress

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December 211

¼ Mile

1 Mile

Startup and commissioning: construction is completed and the facility has been in continuous integrated operation since June 2012

Sapphire Energy – IABR 2 - Accomplishments & Progress

From the air (looking east to west) – late November 2012

Sapphire Energy – IABR 2 - Accomplishments & Progress

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The phase one shakedown for the Green Crude Farm is designed to demonstrate the viability of all unit processes and operations

Cultivation Open pond, CO2, and ag industry fertilizers and crop protection methods

Harvest Proprietary process to flocculate and de-water Dissolved Air Flotation unit allows us to skim algae from the water Algae slurry is transported to the extraction unit

Extraction Sapphire uses a proprietary, innovative, solvent-based extraction system to process oil and nutrients Slurry undergoes chemical reactions with heat, pressure and solvents to create refinable crude oil

Sapphire Energy – IABR 2 - Accomplishments & Progress

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A few IABR production metrics to date

Strain development

Extraction module (PDU)

Cultivation module

Harvest module

Continuous cultivation of 20 wet acres (summer and winter strains) since 2ndQ 2012

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67 million gallons of culture harvested and returned to ponds

PDU debottlenecked & commissioned in

October 2012

378 gallons of oil

123 MT dry biomass recovered

523 MT CO2 consumed

Current as of 15 April 2013

Sapphire Energy – IABR 2 - Accomplishments & Progress

Algae is a superior renewable feedstock

Source: Cambridge Energy Research Associates

80

70

85

50

40

30

20

10

090807570656055505 45403530252015

60

100

100

90

Saudi Arabia

Other Middle East

Russian Federation

China

Libya

Mexico

Other South America, Europe,

Eurasia, and Africa

UK North Sea

Other North

America

Brazil Deep WaterGulf of Mexico Deep Water

Angola Deep WaterNigeria Deep Water

Canadian Oil SandsOther South America and North America

Oil supply marginal cost curve for 2008 WTI equivalent Co

st o

f pro

duct

ion

($ p

er

barr

el)

Cumulative production (million barrels per day)

Sapphire algal oil production will increasingly compete with traditional oil as marginal costs continue to rise

•Scalable to millions of barrels per day •Cost competitive with marginal crude oil production •Completely fungible with infrastructure and fleet •Favorable life cycle with respect to CO2

•Does not compete with agricultural products, land, or water

Superior attributes of algae

Algae fuel can be grown on marginal land with saline water

Petroleum-based diesel Sapphire algal diesel

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95 -68%

Total emissions

Combustion

72

Production, refining, transport

30

CO2 uptake

-71 Total

emissions Combustion

74

Production, refining, transport

21

Grams CO2e per MJ

Sapphire Energy – IABR 3 - Relevance

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From the very beginning Sapphire’s focus has been to create a drop-in replacement for crude oil from algae

2005-Ongoing 2009-Ongoing 2012-2015 2016-2018

Laboratory/ Proof of Concept

Commercial Launch

Pilot proof of concept/ improvements

Commercial Demonstration

Sapphire Energy – IABR 3 - Relevance

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OPEN POND CULTIVATION—BREAKTHROUGHS IN THE FIELD

Sapphire Energy – IABR 4 - Critical Success Factors

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Large-scale production of photosynthetic algae Pilot technology facility Commercial demonstration facility

• 22-acre pilot facility operated since 2009 • Over 180,000 hours of large pond

cultivation piloting

• Sapphire is operating the world’s first integrated algal-oil production facility

• Operations began in Q3 2012

300

feet

Sapphire Energy – IABR 4 - Critical Success Factors

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Cultivation: Sapphire grows algae in a proven, scalable, growing system, while continually reducing cost

Algae grow rapidly and continuously, all year • Ponds are harvested daily and some of the biomass is

removed for processing • The remaining algae quickly replicate and replace the

harvested portion • The result is a consistent biomass density, set for

optimal growth

Sapphire Energy – IABR 4 - Critical Success Factors

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Sapphire has a fully integrated R&D asset pipeline, enabling creation and testing of strains from the laboratory to the field

• Outdoor mini-ponds • Large Ponds • Harvest • Extraction

Labo

rato

ry (S

D) • Screening

• Columns • Pond simulators • Greenhouse mini-ponds

Pilo

t fac

ility

(NM

) Co

mm

. Dem

o. (N

M)

• Inoculation Ponds • 1.1 Acre & 2.2 Acre ponds • Harvest Channel & Pond • Large Scale Harvest • Water Return Pond

Sapphire Energy – IABR 4 - Critical Success Factors

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Sapphire has advanced biotech and oil production systems

Indicative accomplishments

Sapphire’s technology improves strain robustness

Sapphire has steadily increased oil extraction yield and decreased cost Percentage of biomass extracted as hydrocarbon

Molecular and biochemical innovation, enhancement, control, and oil production

Advanced, industrial-class crop evaluation systems

Breakthrough, novel chemical engineering and oil production systems

Novel genetic enhancements and manipulations (not previously possible with algae)

High throughput screening and selection (not previously demonstrated with algae)

50%40%

28%22%20%15%

7%

0%10%20%30%40%50%60%

2011 2007

Unhealthy base strain Healthy Sapphire improved strain

Sapphire Energy – IABR 4 - Critical Success Factors

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WET EXTRACTION—BREAKTHROUGHS IN THE FIELD

Sapphire Energy – IABR 4 - Critical Success Factors

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Harvesting: algae and water are separated to prepare algae for extraction Sapphire uses a Dissolved Air Flotation (DAF) system to concentrate algae

Solution enters the DAF in dilute concentration

After the DAF, the algae is concentrated

1. Cluster: chemicals are applied which make the algae stick together

2. Float: air bubbles float algae to the surface

3. Skim: floating algae harvested with a skimmer

DAF technology adapted for algae

Sapphire Energy – IABR 4 - Critical Success Factors

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Extraction: the harvested algae slurry is processed using proprietary technology to extract oil and nutrients

Sapphire uses a proprietary, innovative, solvent-based extraction system

Concentrated algae enters the extractor as a slurry

Extraction process creates refinable crude oil 1. Heat and pressure: the slurry

is exposed to heat and pressure, causing separation of materials

2. Chemicals: solvents are added to complete separation process

Slurry undergoes chemical reactions

Sapphire Energy – IABR 4 - Critical Success Factors

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Extraction breakthrough: Sapphire has substantially increased the amount of oil which can be recovered from biomass

Sapphire uses a proprietary, innovative, solvent-based extraction system

Strain Extracted oil yield (% ash free dry weight) Prior Methods Sapphire Process v2

Strain A 15% 50% Strain B 15% 43% Strain C 10% 48% Strain D 10% 38% Strain E 5% 38% Strain F 5% 36% Strain G 5% 41% Strain H 5% 39%

Advantages: • Algae can be processed

wet • High yield boost • Enables broad range of

algae strains

Sapphire Energy – IABR 4 - Critical Success Factors

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Extraction: Renewable Green Crude oil leaves the extractor

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Sapphire Energy – IABR 4 - Critical Success Factors

COMPATIBLE CRUDE OIL—BREAKTHROUGHS IN THE FIELD

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Sapphire Energy – IABR 4 - Critical Success Factors

Extraction R&D projects have substantially increased the amount of oil which can be recovered from biomass

Drying and hexane extraction

Wet extraction with H2SO4

Acid/base hydrolysis then wet extraction

Medium pressure hydrolysis method, 200°C, 220 psi

Hydrothermal treatment (HTT) then solvent extraction

HTT with improved solvent Pretreatment upstream of HTT; continuous extraction and optimized commercial design

Yield enhancement technology (e.g. catalyst)

Future Past 65%

50%

40%

28%

22% 20% 15%

7%

60%

70%

50%

40%

30%

20%

10%

0%

Extractable oil fraction Mass of oil per mass of algae

• Past and future yield benefits are absent biological improvement

• Patent issued for conversion and extraction process on June 5, 2012

• Operating demonstration scale HTT since October 2011

• Plan to convert demonstration scale HTT and extraction to improved solvent in 2014

• Lab, pilot and demonstration scale facilities for R&D

Sapphire Energy – IABR 4 - Critical Success Factors

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Algae bio-crude has been successfully upgraded at typical refinery hydrotreating conditions

10% Sapphire bio-crude balance solvent and inerts

10% Sapphire bio-crude with petroleum feedstock (6 day test run)

Diesel product meets all requirements of ASTM D975

Sapphire Energy – IABR 4 - Critical Success Factors

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Sapphire Energy – IABR 5 - Ongoing & Future Work

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1

2

3

4

5

1

2

3

4

5

Phase I Facilities Complete

Final Phase Design Basis Stage Gate

Planned Final Phase Design & Construction

Phase I Startup & Process Demonstration Ongoing

Planned Final Phase Startup & Process Demonstration

Challenges and Success Corn Husks Tumbleweeds

PDU Filter Black Oil

Sapphire Energy – IABR 5 - Ongoing & Future Work

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Relevance Approach Technical Accomplishments Success Factors and Challenges Future Work

Sapphire Energy – IABR Summary

The IABR is a key step in the development of commercial scale drop-in crude from algae, sunlight and CO2 Purposeful and targeted technology development that is data driven and maximized for project success Large scale outdoor production of drop-in crude to be refined for market use Need to continue with project balance to deliver final goals and maintain momentum and policy support Build out and deployment of Next Generation Technologies

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Sapphire’s intellectual property program has produced a robust portfolio

Extensive portfolio Freedom to operate and barrier to entry

• Over 303 active patent cases*

• ~50 patent families

• Average of 25 filings annually

• Filings and grants are worldwide

* As of September 2012

Includes patents on all key platform technologies • Molecular biology • Cultivation / harvesting • Extraction • Upgrading • Analytics

Claims limit competitors’ freedom to operate • Sequences • Organisms • Oils and products

Sapphire Energy – IABR Summary

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Sapphire is currently producing barrels of Green Crude Oil

Sapphire Energy – IABR Summary

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